ETF Weekender: Flows Hit $600 Billion. But Is Passive Out of Control?
(Bloomberg) -- Welcome to the ETF Weekender, your round-up of the biggest and most interesting stories from the hottest corner of Wall Street.
The week may have been shortened by a holiday but it still managed to pack in plenty of action, from a crypto selloff to a Soros-BlackRock spat and more. Amid economic worries and delta variant fears, nerves are on display everywhere — yet for all the noise, both stock gauges and the ETF market actually seem to be holding up fairly well.
In this week’s edition: Flows hit a new milestone, an outspoken strategist argues passive is taking control, and Janus Henderson goes green.
These are the stories you need to read.
$600 Billion and Counting
What happened: Total flows into the U.S. exchange-traded product market have topped $600 billion for the year with more than three months still to go. Along the way assets in the world’s biggest ETF, SPY, have topped $400 billion for the first time.
Why it matters: The latest milestone comes just six weeks after flows topped the all-time annual calendar record of $497 billion (set last year). For all the drama of markets this year, and the world’s social, economic and political turmoil, the story for ETFs has simply been a deluge of cash.
Dog Gets Wagged
What happened: Vince Deluard, a long-time Wall Street analyst, says there is increasing evidence that passive funds are distorting markets — and investors should take advantage.
Why it matters: See above. Most of those hundreds of billions of dollars are heading to cheap index-tracking ETFs. If Deluard is right and those vehicles are messing with market behavior — and there are many who argue otherwise — then the situation is only going to get worse.
More ESG, More Active
What happened: The $428 billion asset manager Janus Henderson has launched five actively managed ESG ETFs.
Why it matters: Take your pick: 1. The number of actively managed ETFs launched this year continues to double their passive rivals. 2. Issuers are still chasing a slice of investor ESG demand. 3. Janus Henderson reckons successful ESG investing needs active oversight.
Want more? Bonus weekend reading
Good Intel: Shroom Boom
A glimpse at the Bloomberg Intelligence analysis available on the terminal.
The first psychedelics ETF in the U.S. has struggled since launching six months ago, yet industry prospects appear bright. The Defiance Next Gen Altered Experience ETF (ticker PSY) has been hurt by cannabis stocks, a lack of drug approvals and lagging small caps and is down 20% since its March launch. Yet a similar fund in Canada has shown that investors are keeping the faith, while the market for medicinal mushrooms is expected to expand about 16% annually for the next six years, according to Data Bridge Market Research.
This fund is a leveraged bullish bet that’s seeing a ton of action this year. Investors are — or one big investor is — piling in and out to ride moves in a sector highly exposed to the economic cycle and the reopening trade. With $3.1 billion in assets it is one of the biggest leveraged ETFs.
That’s the answer. The question identifying this fund will appear in the next edition. The question from Aug. 28: What is the VanEck Vectors Social Sentiment ETF, ticker BUZZ?
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